Unpublished Price Sensitive Information (UPSI) builds the bedrock of fairness and transparency in the securities market. Under Regulation 2(1)(n) of the PIT Regulations, UPSI means information that is not published or by its nature cannot be expected to be published and includes critical information that may reasonably be expected, upon disclosure, to have a material impact on the price of a company’s securities. Moreover, a study done by SEBI itself indicated that listed entities were restricting UPSI classification to only those items specifically listed under the PIT Regulations and failed to consider other material events. This approach defeated the spirit of the law, created ambiguity in compliance, and held back SEBI’s efforts at controlling insider trading and ensuring a level playing field regarding access to vital information.
These issues were sought to be addressed by SEBI, vide a consultation paper in November 2024, which proposed amendments so as to broaden the definition of UPSI. The amendments have been proposed to align UPSI with material events defined under Regulation 30 of the LODR Regulations. Better coherence, consistency in compliance, and increased responsibility will go afar toward bringing more transparency and competency to the securities market. The evolution of UPSI, proposed amendments, and their possible implications for market participants will form the basis on which this article discusses these issues.
EVOLUTION OF UPSI:
SEBI constituted a committee known as the NK Sondhi Committee in 2013 to define the ‘general available information’ that the information available to the public will be known as general available information. The committee has chosen not to define a “non-discriminatory basis” rigidly but to assess it case-by-case using practical, reasonable standards. However, the committee opined that every piece of information will not be regarded as Unpublished Price Sensitive Information. The Fair Market Conduct Committee (FMC Committee), which was established in 2017 and is chaired by Shri T.K. Viswanathan, noted that its definition is wide and broad, covering a range of situations.
By adding “material events per the listing agreement,” it accepts such events to be part of UPSI. It recommended deletion of the specific reference to “material events per the listing agreement” from the definition of UPSI under the SEBI PIT Regulations, stating that not all material events that are required to be reported under Regulation 68 of LODR may be UPSI under the PIT Regulations. The proposed amendment to the definition of UPSI to include material events defined under Regulation 30 of the LODR Regulations was put forward by SEBI in May 2023. They thought that listed entities would take an astute approach while distinguishing information as UPSI using the principles under PIT Regulations, which has not been the case. Various cases of insider trading, a few with notional profits crossing ₹25 crore, remained undetected owing to failure in categorizing material events as UPSI. SEBI observed that companies, by and large, confined UPSI classification to the illustrative list under Regulation 2(1)(n) as if it were an exhaustive list, leaving much critical information of price sensitivity unclassified. In the 2024 Consultation Paper, material events were again proposed to be inducted under UPSI by naming 13 items specifically for inclusion.
PROPOSED EVENT TO BE INCLUDED IN THE DEFINITION OF UPSI
The recommendations of the SEBI Working Group on amendments with a view to expanding the definition of UPSI were intended to bring in more translucence and coordination with Regulation 30 of the LODR Regulations. It contains several key events, namely: Changes in credit ratings, particularly upward or downward revisions, which are proposed because these bear a strong relevance to investor confidence. The decisions about fundraising through the issue of shares or bonds are included since they affect the capital structure of the company. Similarly, agreements affecting management control like shareholder pacts or joint ventures are considered UPSI as they will change the corporate governance structure. Events like frauds, defaults, or arrest of key personnel and resignation of senior management or auditors are included for its material impact on reputation and market perception. On similar lines, restructuring decisions of loans, one-time settlements, or application of insolvency and winding up is proposed, since it shows the financial health and stability.
Other inclusions involve forensic audits, where the initiation or termination of any investigations relating to financial mismanagement or fraud may indicate material risk. Proposed are regulatory actions, including fines and sanctions, because these have reputational and operational consequences. It involves events relating to the granting and termination of major contracts, as well as any significant litigation outcome, inasmuch as these could have a material impact on the financial performance. Proposals also involve the question of such licenses or regulatory approvals or even its suspension, which are required for operating the business. And last but not least, guarantees or indemnities issued by the company for an amount above the limit, other than in the normal course of its business, is incorporated as they will lead to financial obligations. These proposals have been designed in such a way that their effective implementation will make it mandatory for companies to disclose the main price-sensitive events of every quarter in a timely fashion, enabling investors to arrive at well-informed investment decisions with much-needed transparency, equity, and integrity in capital markets. It gives businesses a better compliance framework where there is less ambiguity on governance practices.
THE BENEFITS OF SEBI’S PROPOSED AMENDMENTS
If the proposed amendments to the definition of UPSI are accepted, the advantages will be multifarious. The proposals increase transparency and fairness in the market by expanding the purview of events constituting UPSI to ensure that all material and price-sensitive information is made available in a timely manner. This reduces the chances of insider trading and market manipulation, therefore enhancing investor confidence and trust in the regulatory regime
The proposals bring a better and neater framework for compliance, so to say, especially for companies. It then aligns the definition of UPSI with Regulation 30 of the LODR Regulations, making it less intricate to identify and classify an event as material. Naturally, this will minimize confusions and thereby the propensity for non-compliance cases. This also reduces, to a large extent, risks on legal and reputational fronts, helping the Company maintain its credibility before investors at large and regulators.
Investors also benefit tremendously due to the changes brought forth, as a result of which equal access is given regarding critical information on which the decisions are based. Well in time disclosure of various events such as key management changes, regulatory action, or forensic audits prevents unreasonable speculation and decreases volatility within the market. The proposals have also ensured better efficiency about the pricing of securities as all material information would be costed into the stock prices in a better way.
The proposed redefinition of UPSI by SEBI would be a great leap forward for increased transparency and fair play in the securities market. Upscaling the scope of UPSI to include such important material events as changes in credit ratings, decisions to raise funds, and key contractual outcomes, SEBI proposes to give investors information that could be timely and relevant and, therefore, have a material impact on stock prices. The addition of new events to the definition of UPSI further promotes accountability and responsibility among the listed entities. Aligning the divulgence obligations with Regulation 30 of the LODR Regulations reduces uncertainty in compliance, as it will make insider trading and selective information diffusion harder to occur. This is a step in the right direction to erase the deficiencies of the past when non-disclosure of critical information led to a lot of insider trading and speculation in the market. The inclusions of various events mentioned herein ensure that companies have taken responsibility for their disclosures. In this way, culture compliance and integrity are sown. Eventually, all these changes will provide a better playing field for all participants in the market and thereby shore up investor confidence to encourage a more sound financial ecosystem. The amendment for UPSI reflects SEBI’s intention to update the regulatory frameworks since the financial markets are dynamic.
Author: Dipanshu Raj, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.